It’s been six weeks since the gaming industry has been able to report any meaningful revenues or earnings. Yet share prices have managed to claw their way back from the abyss, largely, it appears, on a belief that the worst is over.
For most listed companies, the nationwide shutdown in mid-March marked a low. Since then, they’ve come roaring back. In April, prices across the board were up by double digits. In some cases, they more than doubled.
“It’s crazy,” Matt Sodl, managing director of Innovation Capital, an industry-facing investment bank, told GGB News. “They’re not trading on fundamentals. This is hope—the silver lining around when the industry can get back open.”
Not that prices don’t still have a long way to go. As of April 26, Innovation’s index of large-cap operators was down more than 43 percent year-to-date. Mid-caps and small-caps were down 52 percent and 45 percent, respectively. Large- and mid-cap suppliers were down more than 54 percent.
Brad Boyer, a vice president of equities research for brokerage Stifel Nicholas, has tracked the year’s ups and downs. First, he told GGB News, there was “hysteria, panic-driven trading when no one knew what was happening.”
“You had a complete property shutdown,” he said. “This had never happened before. And these guys were leveraged going into this. So there were concerns about solvency and (debt) covenants.”
Then a certain calm took hold, as investors came to realize most names had the wherewithal to ride out the storm.
“Everybody has been able to go to the markets to raise debt and draw down credit lines,” said Boyer. “So what people saw was, a.) the runway, and b.) these guys have cash.”
The price surge over the last month amounted to an emotional lift around the potential for a recovery, he said. “There’s this sentiment trading going on around this whole world reopening,” said Boyer, and there’s something to be said for this, in his view. “I’ve been talking to these guys, and what I’m hearing is there’s huge pent-up demand, especially in the regional casinos. People were used to going to these properties, in a lot of cases, at least once a week. The people who have a social predisposition to go to casinos, the frequent players, that portion of the industry, is going to come back. I think the initial numbers can look pretty good.”
He called it the “sugar high,” and said it’s going to “fuel the fire” under the current rebound in prices. But it won’t last.
“Once that burns off, it’s going to be a long road to recovery, and it’s going to come down to balance sheets. The next question is, how well can you service your debt? And if there’s any kind of shock to the system from a consumer standpoint” a major recurrence of the pandemic would be the most obvious, and obviously what everyone fears the most ”I think it’s going to get precarious for a lot of people.”
He sums up his take on prices going forward as “Asia first, then the regional markets”—Asia because of the high cultural propensity to gamble, the supply-demand imbalance that characterizes most markets, Macau in particular. In his words, “Consumers there are used to (viral epidemics), whereas it’s new to us. Who’s ever had the experience of walking down the Strip in a mask and where everybody else is wearing a mask?”
Boyer believes the regional names will fare well because their markets are “absolutely about convenience.” Feeding their surge will be a general reluctance among consumers to venture too far from home, especially on planes. “People who may have wanted to go to Vegas won’t want to travel. If you’re in Denver you’re going to take the drive up the mountain to Black Hawk.”
In that respect, too, “A lot of the tribal markets are going to be fine.”
Las Vegas, on the other hand, will face challenges. “Any market where travel is key, you’re going to see lingering softness there,” Boyer said.
He expects also that the realities of the “new normal”—social distancing, health and safety restrictions will not play well in the socially driven, crowd-oriented culture that makes Las Vegas unique.
“Think about it. In a club, do you think people are going to want to walk around in masks? But if you’re sitting in a trance in front of a slot machine the experience is the same as it was on March 1.”
Then again, maybe this crisis will force the Strip to reinvent itself, and for the better, in Boyer’s view it’s a “prime opportunity,” he said, to rethink the prevailing business model of “cut costs, cut costs, cut costs and jam it to the consumer on the other side and tell your investors you’re growing.”
He’s talking about resort fees, parking fees, the “$12 bottles of water,” the overdependence on the convention trade, the “expense account people who don’t care what they spend.”
“There’s nothing like Las Vegas,” he said, “but they need to do something to drive demand,” he says. “They need to get back to basics𑁋the leisure traveler.”
